Exhibit 10.50
RIO
TINTO
Guyanor Resources S.A.
Rotissement Calimbe II
Route du Tigre 97300
Cayenne
French Guiana
9 June 1999
REF: 99483.KHH
Dear Sirs
Joint Venture - Heads of Agreement
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We refer to our recent discussions concerning the establishment of a joint
venture between Rio Tinto Mining and Exploration Limited ("Rio Tinto") and
Guyanor Resources S.A. ("Guyanor") to explore for and, if considered
commercially feasible, develop and mine diamonds within French Guiana.
The parties intend that these Heads of Agreement will be replaced by a more
detailed Joint Venture Agreement (the "Joint Venture Agreement") to be executed
within six (6) months of the date of this letter. If the parties are unable to
agree on the terms of the Joint Venture Agreement within that six (6) month
period (or such longer period as Rio Tinto and Guyanor may agree) then either
party will have the right, upon giving written notice to the other, to terminate
these Heads of Agreement and clauses 3.2, 3.3 and 3.4 shall apply.
1. Scope of the Joint Venture
1.1 From the date of signing these Heads of Agreement, Rio Tinto and Guyanor
shall establish an unincorporated joint venture (the "Joint Venture") for
the purpose of conducting joint work programmes within the Area of Interest
with a view to finding, developing and operating, as one or more mines, any
economically viable diamond deposits found thereon. For the purposes of
these Heads of Agreement and the Joint Venture Agreement, the "area of
Interest" will comprise the whole territory of French Guiana excluding
those areas in respect of Guyanor's joint ventures and gold projects at the
date hereof, such areas being defined in Schedule 2 and the location of
which are approximately shown on the second map in Schedule 3 of this Heads
of Agreement.
1.2 While these Heads of Agreement and the Joint Venture Agreement remain
current, the parties agree to make available, for the benefit of their
joint undertaking described herein and for the Joint Venture, any
prospecting, exploration or mining rights held or applied for by them or
their affiliates (including such rights as are held at the date of this
letter) within the Area of Interest in respect of diamonds.
1.3 For avoidance of doubt, each party is free to undertake, alone or in
association with other parties, any activities in respect of minerals other
than diamonds within the Area of Interest. Nothing contained in these Heads
of Agreement or the Joint Venture Agreement shall restrict the ability of
the parties to engage in and receive the full benefit of their business
activities outside the Area of Interest.
1.4 A party and its affiliates may not, within a period of one year from the
date of termination of these Heads of Agreement or the Joint Venture
Agreement, acquire any prospecting, exploration or mining rights for
diamonds within the Area of Interest without first offering the other party
the opportunity, on terms and conditions identical to those contained in
these Heads of Agreement or the Joint Venture Agreement, to acquire an
interest in such rights.
2. Rio Tinto Earn-In rights
2.1 Rio Tinto's Participating interest shall be zero percent until it has
fulfilled the requirements set out herein to earn a 70% participating
interest. However, prior to Rio Tinto earning its 70% interest, but after
it has invested US$3.75 million in work expenditures, should the work
expenditures hereunder result in the discovery of diamond mineralisation
that does not appear to offer the possibility of meeting Rio Tinto's
investment criteria, such area may, at Rio Tinto's sole election, be
excised from the Area of Interest and shall be held or traded by the
parties on a Rio Tinto 51 %, Guyanor 49% basis for a period of one year
after the excise date - such date having been agreed and recorded by the
Management Committee. If Rio Tinto has not been able to agree the sale,
transfer or optioning of its 51% interest within such one year period at
the end of the one year period its interest shall transfer to Guyanor in
consideration for a 0.3% NSR royalty from future production of diamonds
from the excised area whether this production is by Guyanor, its partners,
its transferees or its successors in title. For avoidance of doubt, during
the one year period in which the interests in an excised area are 51 % Rio
Tinto, 49% Guyanor, each party shall be free to sell, transfer, option or
otherwise transact its interest without obligation to the other.
2.2 Subject to paragraph 2.3 below, Rio Tinto shall have the right to earn a
70% "Participating Interest" in the Joint Venture by sole funding all
prospecting, exploration and evaluation work in the Area of Interest up to
and including the
earlier of the date on which:
(a) the Board of Directors of Rio Tinto (or the Board of Directors of any
affiliate of Rio Tinto) resolves as recorded in the minutes of a Board
Meeting to commence with the development and mining of any diamonds
within the Area of Interest; or
(B) Rio Tinto incurs on behalf of the Joint Venture work expenditures of
at least US$17 million in sole funding prospecting, exploration and
evaluation work within the Area of Interest.
2.3 Upon Rio Tinto earning a 70% Participating Interest in the Joint Venture,
Guyanor shall be deemed to have a 30% Participating Interest. Thereafter,
the parties shall contribute to the funding of Joint Venture operations in
proportion to their respective Participating Interests.
2.4 In order to maintain its right to earn its 70% Participating Interest in
the Joint Venture Rio Tinto shall fulfil the following conditions:
(a) in the period being one year from the date on which these Heads of
Agreement are signed, Rio Tinto must sole fund within the Area of
Interest work expenditures of at least US$750,000 (the "Minimum
Expenditure") and if it withdraws prior to completing the Minimum
Expenditure it shall pay to Guyanor the difference between such lesser
sum as has been actually spent and the Minimum Expenditure unless the
withdrawal occurs because of Guyanor's default in performance of its
obligations or because the representations and warranties hereunder
are materially incorrect.
(b) for each calendar year commencing 1 January 2000 and while the Joint
Venture Agreement remains current, Rio Tinto must incur within the
Area of Interest work expenditures of at least US$250,000;
(c) by the period ending five (5) years from the date on which these Heads
of Agreement are signed, Rio Tinto must have incurred within the Area
of Interest work expenditures of at least US$3,750,000; and
(d) Rio Tinto must earn its Participating Interest in the Joint Venture
within ten (10) years of the date on which these Heads of Agreement
are signed.
Except for the Minimum Expenditure the making of any work expenditure shall
be in the sole discretion of Rio Tinto and the sole remedy of Guyanor in
the event that Rio Tinto does not meet any of its work expenditure
requirements hereunder, excepting force majeure/1/ shall be termination of
this Agreement. If any of the conditions (a) through (d) in this clause are
not met, except for reason of force majeure, Rio Tinto shall be deemed to
have withdrawn from this Agreement and the parties shall have no further
obligation to each other except as may be
otherwise provided in clause 3 of this Heads of Agreement.
If Rio Tinto is prevented by force majeure from incurring work expenditures
necessary to maintain or exercise its option then it shall have additional
time to incur such work expenditures as is equal to the duration of the
force majeure condition.
2.5 Guyanor undertakes to do all acts and to execute all documents as shall be
necessary to enable Rio Tinto to earn, hold and protect its right to
acquire a 70% Participating Interest and, thereafter, its interest in the
Joint Venture.
2.6 Guyanor further undertakes that it will not make any representation,
statement or commitment to any governmental or state authority relating to
the level of work expenditures to be made on any properties within the Area
of Interest without first obtaining Rio Tinto's written consent.
3. Withdrawal
3.1 Any party may withdraw from these Heads of Agreement or the Joint Venture
Agreement by giving not less than two (2) months' prior written notice.
3.2 Upon withdrawal the withdrawing party shall transfer to the non-withdrawing
party all its right, title and interest to any prospecting, exploration
development, or other form of mineral right that are the subject of the
Joint Venture Agreement. The withdrawing party shall continue to be liable,
to the extent of its Participating Interest prior to its withdrawal, for
any liabilities or obligations, which arose out of operations or activities
prior to the date of its withdrawal.
3.3 If Rio Tinto withdraws prior to earning its 70% Participating Interest,
then it shall:
(a) meet the costs of any environmental or rehabilitation liabilities
which arise under French law as a direct consequence of the activities
or operations undertaken after the date of these Heads of Agreement in
the Area of Interest prior to its withdrawal, provided that such
liabilities arise from the prudent conduct of Guyanor in accordance
with Clause 5.6 hereunder and are not the result of any gross
negligent or wilful reckless act or omission by Guyanor; and
(b) meet any costs which might be incurred by Guyanor under French Labour
law with respect to work force reductions that are specifically caused
by Rio Tinto's withdrawal, and the direct field demobilisation costs
specifically arising from Rio Tinto's decision to withdraw.
3.4 Where a party has withdrawn from the Joint Venture, each other party shall
do all things and execute all documents to ensure that the withdrawing
party's name is
removed from any register pertaining the exploration and/or mining rights
held by the Joint Venture.
4. Work Programmes and Management Committee
4.1 No later than 30 days after the date hereof the parties shall establish a
Management Committee to determine the annual work programmes and budgets
and to generally oversee exploration, evaluation and development activities
within the Area of Interest. Each party shall be entitled to appoint two
members to the Management Committee. A quorum shall be deemed formed if
there is at least one member present from each party.
4.2 During such period as Rio Tinto is earning its 70% Participating Interest
and sole funding work expenditures, it shall determine all decisions of the
Management Committee. Thereafter, each party shall have a vote on the
Management Committee in proportion to its Participating Interest, and
decisions of the Management Committee shall be decided by a majority of
votes. Throughout the term of this Heads of Agreement and the Joint Venture
Agreement the Management Committee may determine to surrender mineral
rights that are subject to this agreement, but the Operator shall not
proceed with such surrender before giving the minority party the
opportunity to adopt such mineral rights in its name - any such transfer
being free of consideration (but the transferee shall bear the costs of
such transfer).
4.3 The Management Committee shall convene at least once every three months in
a location to be agreed between the parties, failing which, it shall meet
in Brasilia, Brazil.
5. Operator
5.1 Guyanor shall be appointed the first Operator of operations to be
undertaken under these Heads of Agreement and the Joint Venture Agreement.
During the period in which Rio Tinto is sole funding and Guyanor is
Operator Guyanor shall provide monthly reports of exploration progress and
expenditure in such reasonable detail and according to such reasonable
schedule as Rio Tinto may request.
5.2 The Operator undertakes to promptly inform the non operator of any
occurrence or non occurrence that may affect the validity of good standing
of the Titles or any part of them.
5.3 The Operator undertakes to promptly inform the non operator of any adverse
environmental, health, safety or community relations event or issue arising
out of or in relation to work performed under this Heads of Agreement or
the Joint Venture Agreement.
5.4 During the period in which Guyanor is Operator, unless provided in an
approved programme and budget, it shall seek Rio Tinto's consent to the
making of any commitment of duration longer than the then current work
programme and budget or calendar year whichever is the shorter.
5.5 Following completion of the Minimum Expenditure in accordance with
paragraph 2.3(a), Rio Tinto (or its nominated affiliate) may elect, and
shall have the right upon making such election, to be appointed the
Operator of operations to replace Guyanor. Rio Tinto shall meet any cost
that may be incurred by Guyanor under French labour law with respect to
work force reductions that are specifically caused by Rio Tinto replacing
Guyanor as Operator.
5.6 During any period in which Rio Tinto is sole funding and is Operator it
shall provide monthly reports of exploration progress and expenditure. Any
party appointed Operator under these Heads of Agreement or the Joint
Venture Agreement shall manage, direct and conduct operations within the
Area of Interest in accordance with all Management Committee decisions.
5.7 The Operator shall conduct all operations in an efficient and workmanlike
manner, in accordance with the highest standards of safety and sound mining
industry practice, and in compliance with all applicable laws and the
provisions of any exploration or mining titles held for the benefit of the
Joint Venture. In no event shall standards of environmental, health, safety
and community relations care and management be less than those required by
Rio Tinto corporate policy.
5.8 Either party may call a meeting of the Management Committee upon giving
reasonable written notice to the other.
5.9 Where Guyanor is Operator, Rio Tinto shall have the right to second or
contract a geologist to Guyanor, to evaluate and assist with the
implementation of the approved programmes. The costs of that secondment
shall be expenditures hereunder. Likewise, where Rio Tinto is the Operator,
Guyanor shall have the right to second or contract a geologist to Rio
Tinto, to evaluate and assist with the implementation of the approved
programmes. the costs of that secondment shall be part of the work.
5.10 The Operator shall undertake activities in accordance with approved
programmes and budgets. To the extent that the costs incurred for such
activities exceed an approved budget by up to 10%, such costs shall be
deemed approved; to the extent that costs incurred exceed 10% over budget,
the excess over 10% shall be for the sole account of the Operator unless
the Management
Committee has agreed a revision to the budget.
5.11 The Operator shall have the right to be reimbursed for the costs of the
work it performs including administrative and office overhead expenses
directly resulting from work carried out hereunder. That reimbursement
shall be no greater than what is necessary to recoup, on a cost-accounting
basis, the costs it incurs in performing its obligations hereunder. Any
transactions or agreements entered into by the Operator with any of its
affiliate or associate companies shall be on an arms length basis.
5.12 The Operator shall make cash calls on a calendar monthly basis. Such cash
calls shall be sufficient to fund the next month's exploration expenditures
which shall have been forecast by the Operator at the beginning of the
calendar year in a monthly budget phasing. The cash call may exceed the
next month's exploration expenditure to the extent necessary to maintain no
less than two weeks' and no more than four weeks' excess funding balance in
the bank account designated for funding work expenditures hereunder. Upon
termination of these joint venture arrangements the unspent balance of
joint venture funds shall be appropriately reimbursed to the parties.
Guyanor agrees to meet all reasonable requests from Rio Tinto to perform its
obligations to such standards as are required by this Clause 5. Rio Tinto shall
at all reasonable times and at its expense have access to Guyanor's operations
hereunder upon reasonable notice and the right to audit at its cost Guyanor's
internal procedures and Guyanor accepts to make all reasonable changes to these
as may be requested by Rio Tinto.
6. Dilution, default and elimination of minority interests
6.1 If any party elects to not contribute to the funding of Joint Venture
operations in proportion to its Participating Interest, then its
Participating Interest shall be diluted at a standard rate.
6.2 If any party fails, after having made an election to do so, to contribute
to the funding of Joint Venture operations in proportion to its
Participating Interest, then its Participating Interest shall be diluted at
25% above the standard rate.
6.3 If any party is diluted below a 10% Participating Interest, it shall be
deemed to have withdrawn from the Joint Venture and shall relinquish its
Participating Interest. In lieu of its Participating Interest, the
withdrawing party shall be entitled to receive a 5% Net Profit Interest
from operations in the Area of Interest.
7. Marketing
7.1 Guyanor appoints Rio Tinto (or Rio Tinto's nominated affiliate) as its sole
and exclusive agent to market and sell all diamonds produced by the Joint
Venture from the Area of Interest on its behalf as long as Rio Tinto has an
interest greater than 50%. If at any time operations in the Area of
Interest are being conducted by a joint venture company, the parties
appoint Rio Tinto (or its nominated affiliate) as the sole and exclusive
agent to market and sell such diamonds as the joint venture company shall
be entitled to.
7.2 Upon Rio Tinto completing its Minimum Expenditure, Guyanor and Rio Tinto
shall negotiate and execute a Marketing Agreement to give effect to the
above appointment. The Marketing Agreement shall provide that Rio Tinto or
the relevant affiliate of Rio Tinto (as the case may be) shall be entitled,
as agent, to deduct expenses incurred in each sale and to charge a
marketing and sales commission equal to 3% of the gross sale proceeds
accruing to the parties or the joint venture company (as the case may be).
7.3 The appointment of Rio Tinto (and its affiliates) as agent shall be subject
to the applicable laws or orders of government agencies in force from time
to time in French Guiana in relation to the marketing of minerals extracted
or produced in French Guiana. The parties agree to do all acts and execute
all documents as are reasonably necessary to give effect to Rio Tinto's
appointment, or the appointment of an affiliate of Rio Tinto, as agent
under this paragraph 7.
8. Title to exploration and mining rights
8.1 While these Heads of Agreement and the Joint Venture Agreement remain
current, the title to any prospecting, exploration or mining rights
relating to the Area of Interest held by either party shall be held for the
benefit of the other party and the Joint Venture.
8.2 Upon Rio Tinto completing US$3,750,000 in work expenditures, it shall be
entitled to request that all prospecting, exploration or mining rights held
by Guyanor for the benefit of the Joint Venture be transferred into the
name of a newly formed corporate entity "Newco" in which the parties will
hold shares in accordance with their participating interests. Guyanor shall
do all acts and execute all documents to give effect to that transfer.
Newco shall hold those rights for the benefit of the parties in accordance
with their rights under the Joint Venture Agreement. If by reason of any
legal restriction in French Guiana, Newco is not permitted to hold such
rights, then Guyanor shall hold those rights for the benefit of the parties
jointly, until such time as they can be transferred to Newco to be so held.
8.3 In the event that Rio Tinto withdraws from these Heads of Agreement or the
Joint Venture Agreement, or otherwise fails to earn a Participating
Interest, it shall immediately, and at its sole cost, transfer to Guyanor
free of consideration any
right, title and interest it holds in any of the shares of Newco.
9. Representations and Warranties
9.1 Guyanor represents and warrants to Rio Tinto that:
(a) it is a company duly incorporated and in good standing in its place of
incorporation and that it is qualified to do business in those
jurisdictions where necessary in order to carry out this Agreement;
(b) it will not breach any other agreement or arrangement by entering into
or performing this Agreement;
(c) to the extent that Guyanor holds or has under application any form of
rights relating to diamonds within the Area of Interest (the "Titles")
these are listed in the Schedule and are free and clear of all
competing interests and encumbrances;
(d) to the best of its knowledge, there is no area within the Area of
Interest to which any restriction applies as a matter of law,
regulation or French Government policy, whether or not time limited,
specifically to Guyanor acquiring mineral rights in respect of
diamonds (for avoidance of doubt this representation and warranty does
not apply in respect of areas to which all parties suffer similar
restriction);
(e) all fees in respect of any Titles have been paid and other filings
required to maintain the Titles in good standing have been properly
and timely recorded or filed with every applicable governmental
agency;
(f) it has not received any claim or notice of violation alleging any
violation of any law, rule, regulation or permit, including without
limitation, any environmental law, rule, regulation or permit, in
connection with the Titles from any governmental or regulatory
authority, and to the best of its knowledge, there are no pending or
threatened actions, suits, claims or proceedings that may affect the
Titles;
(g) it has delivered or made available to Rio Tinto all material
information concerning the Titles in its possession or control;
(h) to the best of its knowledge, all activities on or in relation to the
Titles carried out by Guyanor up to the date which this Agreement has
been signed have been carried out in accordance with all applicable
laws, regulations and permits, including without limitation those for
the protection of the environment and no conditions exist which could
give rise
to the making of a remediation order or similar order in respect of
the Titles; and
(i) more generally, to the best of its knowledge, all activities carried
out by Guyanor within the Area of Interest up to the date which this
Agreement has been signed have been carried out in accordance with all
applicable laws, regulations and permits and Guyanor has not been
subject to any legal or regulatory action against it regarding such
activities.
9.2 The representations and warranties given under paragraph 9.1 (c) and (e)
shall continue in force and shall be repeated during the term of these
Heads of Agreement.
9.3 Rio Tinto's commitment to the Minimum Expenditure shall be contingent upon
Guyanor's representations and warranties being materially correct.
10. Governing Law
This Heads of Agreement shall be governed by and interpreted in accordance with
the laws of England except with respect to real property and mining law, in
which case the laws of French Guiana shall apply.
11. Miscellaneous
The Joint Venture Agreement shall also contain provisions which give effect to
the following:
11.1 Each party shall be free from time to time to transfer its Participating
Interest, or its interest in these Heads of Agreement or the Joint Venture
Agreement, to an associated company or affiliate. Further, a party may
transfer its Participating Interest to a third party, but subject to a
"pre-emptive right" in the other party to acquire the Participating
Interest on the same terms and conditions.
11.2 The parties agree to be bound by obligations of confidentiality in respect
of their operations in the Area of Interest and any data produced
therefrom. There shall be exclusions from these obligations, which reflect
standard industry practice. In addition, Guyanor shall have the right to
make public disclosures of information pertaining to operations under these
Heads of Agreement in the Area of Interest, provided it first obtains Rio
Tinto's written consent to the timing and content of such disclosure (such
consent not to be unreasonably withheld).
11.3 Each party shall give appropriate representations and warranties as to its
capacity to enter into the Joint Venture Agreement. In addition, Guyanor
shall
give appropriate representations and warranties as to its title to any
prospecting, exploration or mineral rights held by it and the terms and
good standing of those rights.
11.4 The parties shall make available to each other all the data and information
in their possession relating to the Area of Interest.
To indicate your acceptance of the terms of these Heads of Agreement please sign
below.
Yours faithfully
for RIO TINTO MINING AND EXPLORATION LIMITED
0 Xx Xxxxx'x Xxxxxx, Xxxxxx, XXXX 0XX, Xxxxxx Xxxxxxx
Signature : /s/ Rado Xxxxx Xxxxx
Name : Rado Xxxxx Xxxxx
Title : Exploration Director
I accept the terms contained in these Heads of Agreement on behalf of Guyanor
Resources S.A.
for GUYANOR REOSURCES S.A.
Signature : /s/ Xxxxxx X. Xxxx
Name : Xxxxxx X. Xxxx
Title : Vice President And Chief Financial Officer
SCHEDULE I
"TITLES"
1.0 Concessions
1.1 St-Elie
St-Elie concession, owned by S.M.S.E. (wholly owned subsidiary)
1.2 Xxxx Xxxxxx
----------------
. 8 Concessions owned by SOTRAPMAG (wholly owned subsidiary):
214-215-216-217-218-219-692-25
. 2 Concessions owned by Tanon : 145 - 102, by agreement Guyanor is allowed
to carry out any exploration and exploitation work.
2.0 Exploration permits
2.l Xxxx lsnard
----------------
. Old "B" type permit #21/93 : will have to be renewed before October 0xx,
0000
. XXx "X" type permit #06/95 : valid until August 1st, 1999. Application for
a five year extension as a PER (Permis Exclusif de Recherches) filed on May
17/th/, 1999.
2.2 Yaou
Old "B" type permit # 01/93, 02/93, 03/93, 04/93. Validity extended until
Government decision concerning the concession application submitted on
March 30th, 1999.
2.3 Dorlin
----------
. Old "B" type permit # 11/93, 12/93, 13/93, 14/93, 15/93, 16/93. Validity
extended until Government decision concerning the concession application
submitted on March 30th, 1999.
2.4 Dachine
------------
. Old "B" type permit # 07/95 : valid until July 1st, 1999.
. Application for a five year extension as a PER (Permis Exclusif de
Recherches) filed on April 30th, 1999.
3.0 Applications submitted
3.1 Concessions
----------------
3.1.1 Yaou
. Concession application submitted on March 30th, 1999
3.1.2 Dorlin
. Concession application submitted on March 30th, 1999
3.2 Exploration permits
------------------------
3.2.1 Xxxx Xxxxxx
. "A" type exploration permit application submitted. Decision pending.
3.2.2 Dachine
. "A" type exploration permit application submitted. Decision pending.
SCHEDULE 2
AREAS EXCLUDED FROM THE AREA OF INTEREST
1.0 Concessions
1.1 St-Elie
------------
St-Elie concession, owned by S.M.S.E. (wholly owned subsidiary)
1.2 Xxxx Xxxxxx
. 8 Concessions owned by SOTRAPMAG (wholly owned subsidiary):
214-215-216-217-218-219-692-25
. 2 Concessions owned by Tanon : 145 - 102, by agreement Guyanor is allowed
to carry out any exploration and exploitation work.
2.0 Exploration permits
2.1 Xxxx Xxxxxx
. Old "B" type permit # 21/93 : will have to be renewed before October 0xx,
0000
. Xxx "X" type permit # 06/95 : valid until August 1st, 1999. Application for
a five year extension as a PER (Permis Exclusif de Recherches) filed on May
17th, 1999.
2.2 Yaou
---------
Old "B" type permit # 01/93, 02/93, 03/93, 04/93. Validity extended until
Government decision concerning the concession application submitted on
March 30th, 1999.
2.3 Dorlin
. Old "B" type permit # 11/93, 12/93, 13/93, 14/93, 15/93, 16/93. Validity
extended until Government decision concerning the concession Application
Submitted On March 30th, 1999.
3.0 Applications submitted
3.1 Concessions
----------------
3.1.1 Yaou
. Concession application submitted on March 30th, 1999
3.1.2 Dorlin
. Concession application submitted on March 30th, 1999
3.2 Exploration permits
------------------------
3.2.1 Xxxx Xxxxxx
. "A" type exploration permit application submitted. Decision pending.