March 12, 1996
Minera Andes Inc.
North Xxxxxxxx Xx.
Spokane, Washington
Attention: President
Dear Sirs:
Re: Memorandum of Understanding - Santa Xxxxx and Xxxx Xxxxxx Properties
Minera Andes Inc., for itself and its Argentinian subsidiary (collectively
"Minera Andes"), has the sole option to acquire a 100% interest in the two
separate properties located in Argentina which are called Santa Xxxxx and Xxxx
Xxxxxx (individually, a "Property" and collectively, the "Properties"), each of
which is more particularly described in Schedule A. Minera Andes has provided a
copy of an official translation of the option agreement on the Santa Xxxxx
Property to Cominco and will promptly provide copies of the option agreements on
the Xxxx Xxxxxx Property. These option agreements are hereinafter called the
Option Agreements. Cominco is interested in acquiring a joint venture interest
in the Properties, on the following terms:
1. Representations and Warranties
Minera Andes has the sole and exclusive option to acquire the sole and
exclusive right to mine or sole legal and beneficial ownership of the
Properties described in Schedule A. The Option Agreements are unamended and
are legally binding, enforceable and in good standing. To Minera Andes'
knowledge, the optionors under the Option Agreements hold good title to the
Properties. Minera Andes has the sole and exclusive right to explore, mine
and market minerals from the Properties; it has the right to enter this
Agreement and to dispose of its interest in the Properties; the Properties
are clear of encumbrances and it has not done anything whereby the
Properties may be encumbered; and there is not currently pending any legal
proceedings, claim or dispute affecting the Properties and, to its
knowledge, there are no grounds for any to be commenced. Subsequent to the
cateos for the Santa Xxxxx Property being issued a large portion of the
Property was placed under park designation. If by January 1997, the
designation is not removed or modified so as to permit mining activities on
the area so designated, the parties shall negotiate in good faith to adjust
the vesting terms set out in paragraph 4 so that the expenditure
commitments for Cominco to exercise the option on the Santa Xxxxx Property
is
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commensurate with the portion of the Property on which mining activities
are permitted.
2. Due Diligence
Cominco has until April 4, 1996 to perform due diligence and notify Minera
Andes if Cominco will proceed with the option and private placement on the
terms set out below for the Properties. If Cominco does not have notice by
that date or elects not to proceed, this Agreement will be of no further
force or effect.
3. Private Placement
If Cominco elects to proceed as contemplated in paragraph 2, Cominco will
subscribe for a private placement of 877,194 units, each unit comprising
Minera Andes treasury common shares and one-half common share purchase
warrant, at 3.42 per unit for an aggregate subscription price of
CDN$3,000,003.40. One full warrant will entitle Cominco to purchase one
Minera Andes' treasury common share at a price per share of $3.98 prior to
April 30, 1997.
Minera Andes shall use or provide 25% of the private placement proceeds for
exploration of the Properties in satisfaction of the first Expenditures to
be incurred by Cominco under paragraphs 5(b) and (c), allocated as between
the Properties in the manner determined by Cominco. As the private
placement is in Canadian funds and some of those proceeds will be used to
satisfy expenditures which are listed in paragraphs 5(b) and (c) in US
dollars, Minera Andes shall be deemed to have converted 25% of the private
placement proceeds to US dollars using the noon fixing price on the date
Cominco closes the private placement. As it incurs expenditures on the
Properties, Cominco shall be entitled to draw down those monies by notice
to Minera Andes, which amount will be paid within 15 days.
As a result of the above and other recent private placements exceeding the
limit of 25% of its outstanding securities during this last six-month
period, the above private placement may, be subject to Minera Andes'
shareholder approval. Minera Andes will endeavor to obtain, by March 22,
1996, the consents of shareholders who, in the aggregate, hold at least 51%
of its outstanding securities and forthwith thereafter request the Alberta
Stock Exchange to approve the private placement without the necessity of a
shareholder meeting. If a shareholder meeting is required, such meeting
shall be held by May 24, 1996.
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4. Additional Properties
Cominco and Minera Andes have discussed opportunities under which they
might work together on other Minera Andes properties without reaching firm
agreement as to how those opportunities may be realized. However, Minera
Andes has agreed to give Cominco the right to review Minera Andes' other
projects for one year, extendable by mutual consent. In this regard, Minera
Andes will keep Cominco regularly informed as to its work on the other
mineral properties and will meet with Cominco in formal session at least
twice per year to review its property holdings and work results. Cominco
will be permitted to do site visits of those other mineral properties from
time to time.
5. Cominco Option
If Cominco elects to proceed as contemplated in paragraph 2, Cominco will
have the option to earn a 51% interest in each of the Properties, which
option shall be separate and independent of the private placement
contemplated in paragraph 3, except that if the private placement is made,
some of the proceeds shall be used to explore the Properties as
contemplated in paragraph 3. Cominco may exercise the option as to either
or both of the Properties as follows:
(a) making a cash payment to Minera Andes within 15 days of its notice to
proceed as in paragraph 2, in the case of Santa Xxxxx, US$250,000, and
in the case of Xxxx Xxxxxx, US$350,000;
(b) subject to paragraph 3, as to the Santa Xxxxx Property, incurring the
following cumulative expenditures, on or before the following dates:
On or before Cumulative
October 31, 1996 US$50,000 (firm)
October 31, 1997 US$500,000 (firm)
October 31, 1998 US$1,300,000 (optional)
October 31, 1999 US$2,750,000 (optional)
October 31, 2000 US$4,750,000 (optional)
if Xxxxxxx fails to incur the firm expenditures listed above prior to
their due dates it may nevertheless maintain the option on the
Property if it incurs the shortfall on the Xxxx Xxxxxx Property;
(c) subject to paragraph 3, as to the Xxxx Xxxxxx Property, incurring the
following cumulative expenditures, on or before the following dates:
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On or before Cumulative Expenditures
March 31, 1997 US$400,000 (firm)
March 31, 1998 US$1,200,000 (optional)
March 31, 1999 US$2,650,000 (optional)
March 31, 2000 US$4,650,000 (optional)
(d) reimbursing Minera Andes for, or paying, all option, lease and other
land costs to be made after the date of this Agreement to exercise the
Option Agreements or to maintain title to the Properties in good
standing under the mining laws of Argentina.
6. Exercise of Option
Upon Cominco completing the cash payments and expenditures contemplated in
paragraph 5, Cominco will have exercised the option and earned a 5I%
beneficial interest in each of the Properties on which it elected to
proceed. Cominco will give Minera Andes notice forthwith after having
incurred the expenditures set out in paragraph 5 and that, as a result, it
has exercised the option. Within 30 days of Cominco's notice, Minera Andes
shall elect whether:
(a) to form the joint venture and contribute its 49% of subsequent costs,
in which case paragraphs 7 to 23 shall apply; or
(b) to decline participation and allow Cominco to increase its interest up
to 62%.
Xxxxxx Xxxxx elected paragraph 6(b), Cominco will earn up to 11 percentage
points of interest by completing a bankable feasibility study for the Property
with Cominco undertaking work as results warrant; provided that if Cominco
completes a bankable feasibility study prior to having incurred an additional
US$22,000,000, it will have earned one percentage point of interest for each
US$2,000,000 in expenditures which it incurs, to a maximum of 11 percentage
points. In the case of Minera Andes' election under paragraph 6(b), paragraphs 7
and 9 and 12 to 23 shall apply.
For purposes of this Agreement, "bankable 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, acting reasonably,
considers suitable to present to third party lending institutions if it decided
to seek debt financing for a mine:
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(c) 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;
(d) 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;
(e) a metallurgical report based upon, at a minimum, laboratory tests of
ore samples which report sets forth and demonstrates the metallurgical
facility of producing a saleable product;
(f) detailed estimates of the costs of pre-production development and
construction of production facilities;
(g) 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;
(h) 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
(i) 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.
7. Management Committee
Following execution of this agreement, a Management Committee will be
established comprised of one voting representative from each of Cominco and
Minera Andes. 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 shall be made by simple majority vote based,
during the term of the option, on Cominco and Minera Andes having 51 and 49
votes respectively, and following the date the option is exercised, on each
party being entitled to a number of votes which is prorata its interest
percentage.
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8. Joint Venture
Upon Cominco having exercised the first option and earned a 51% interest,
the relationship of Cominco and Minera Andes on each Property shall be
governed by a separate joint venture, structured as permitted by the laws
of Argentina. Though an unincorporated joint venture is preferred, the laws
of Argentina may require corporate form of joint venture in which case the
following joint venture terms will be embodied in a shareholders'
agreement. Each joint venture shall have the terms which are set out in the
balance of this Agreement.
Following the date Cominco exercised the first option, the parties shall
bear the costs of further work on the Property, and the risks associated
therewith, in proportion to their respective interests in the Property as
those interests may be adjusted from time to time under paragraph 10. For
purposes of calculating any adjustment to the parties' interests under
paragraph 10, at the date Cominco exercises the option the parties will be
deemed to have incurred the following costs:
(a) Cominco: its actual payments made and expenditures incurred under
paragraph 5;
(b) Minera Andes: 49/51 of Cominco's costs in paragraph 8(a).
9. Project Management
Cominco will be the initial Operator, managing the 1996 exploration program
on the Properties. For the 1996 program and such other programs as the
parties may agree, Minera Andes will enter into a consulting services
agreement with the Operator under which it will provide such equipment,
field personnel, field logistics and office and administrative support and
upon such terms as the parties may agree.
The Operator will be responsible for the daily direction of exploration,
development and mining activities approved by the Management Committee. The
Operator shall have the exclusive right to manage all work on the Property
and to incur the costs required for that purpose. In so doing the Operator
shall, unless it obtains the approval of the Management Committee:
(a) comply with all instruments of title under which mineral properties in
the Property are held; provided that during the term of the Option,
Minera Andes will administer government tenure and the option payments
and, in connection therewith, shall give notice to Cominco at least 21
days prior to a tenure or option due date that the obligation has been
satisfied and Cominco shall forthwith reimburse Minera Andes for
payments made to maintain title in good standing;
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(b) pay all costs properly incurred promptly as and when due;
(c) keep the property and assets relating to the Property free of all
liens and encumbrances;
(d) do all such other things as may be necessary to maintain the Property
in good standing;
(e) maintain accounts in accordance with accounting principles generally
accepted in the mining industry;
(f) perform its duties and obligations in a sound and workmanlike manner,
in accordance with sound mining and engineering practices, and in
compliance with all applicable laws and this Agreement;
(g) permit authorized representatives of each party, at its and their sole
risk and expense and at reasonable times, to have access to the
Property and to all technical records and other factual engineering
data relating to the Property which is in the possession of the
Operator, and
(h) furnish each of the parties with regular progress reports during
periods of active exploration and with an annual summary of the work
performed and the results obtained.
10. Exploration Programs
Programs of exploration will be approved by the Management Committee and
carried out by the Operator. Each party may elect to contribute its
proportionate share of the costs required to conduct an approved
exploration program. If a party elects not to contribute its share of costs
(and the other party elects to contribute to the shortfall which has been
created thereby), the interests of the parties will be adjusted so that
each party holds an interest which is proportionate to its actual and
deemed contribution to the total actual and deemed costs. However, if
Cominco has exercised the first option and Minera Andes has elected under
paragraph 6(a), then twice prior to the approval of a program to commence a
feasibility study, if Minera Andes elected not to contribute to a program,
Minera Andes may avoid the dilution it would have suffered to its interest
on account of that program. To do so, Minera Andes may, within 30 days of
receiving Cominco's report on the program and statement of expenditures,
pay Cominco an amount which is two times the amount which would have been
Minera Andes' share of program costs if Minera Andes had elected to
contribute in the first instance. If Minera Andes' interest is reduced to
less than 20% as a result of adjustment pursuant to this paragraph, it
shall be deemed to have
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surrendered its interest to Cominco and withdrawn from the joint venture
and in consideration for that surrender it will receive a 20% deferred
carried interest as contemplated in paragraph 18.
11. Feasibility Study
When the Management Committee determines that the preparation of a
feasibility study on a Property is justified, it may approve a program
which contemplates the preparation of the study. The Operator will carry
out that program and upon completion of the feasibility study, shall
deliver a copy to the non-operator.
12. Production Decision - Project Financing
Any decision to place the Property into commercial production shall be
based on the feasibility study approved by the Management Committee,
updated, where and if required, to account for any change in circumstances
between the date of delivery and the date a production decision is made. If
the Management Committee makes a production decision, the parties shall
elect within 90 days to arrange their respective financing to bring the
deposit into commercial production and provide their share of the
appropriate guarantees. If Minera Andes elects not to contribute, it shall
be deemed to have surrendered its interest to Cominco and withdrawn from
the joint venture and in consideration for that surrender it will receive a
20% deferred carried interest as contemplated in paragraph 18.
13. Mine Construction
The Operator shall proceed with mine construction with all reasonable
dispatch following the production decision. Construction shall be
substantially in accordance with the production notice subject to the right
of the Operator to cause such reasonable variations in construction to be
made as the Operator in its discretion deems advisable. During the
construction period the Operator shall provide monthly progress reports,
which reports shall include information on any changes or developments
affecting the construction program that the Operator considers material.
14. Operating Plans
A mine shall be operated on the basis of annual operating plans approved by
the Management Committee; provided that the Management Committee may
temporarily suspend or permanently terminate operations pursuant to a
suspension or closure plan approved by it.
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15. Costs Defined
For purposes of this Agreement, "costs' include:
(a) all costs, expenses, charges and outlays, direct and indirect, made or
incurred by the Operator on or in respect of a Property from the date
of this agreement; and
(b) an Operator's fee for administrative services, head office overhead,
use of the corporate infrastructure, and other general services
provided by the Operator and its affiliated corporations not recovered
directly in (a) above, which charge shall be a percentage of the costs
set out in (a) above, as follows:
(i) 10% of costs incurred during the period between the date of this
agreement and the date a production decision is made, except for
third party contracts in excess of US$IOO,000 in which case the
fee for the amount in excess shall be 5%, it being agreed that
Cominco shall not be entitled to an Operator's fee on the
consulting services agreement with Minera Andes referred to in
paragraph 9; and
(ii) 3% of costs incurred during the period after the date a
production decision is made.
16. Payment of Construction and Operating Costs
Following the date a production decision is made, the Operator shall be
entitled to invoice each party for its share of mine construction and
operating costs. 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. The Operator may, at any time thereafter, then demand payment and
if payment of the amount due together with accrued interest is not made
within 30 days of demand, the Operator may sell the defaulting party's
interest and, following application of the sales proceeds to the amount in
default plus accrued interest and the reasonable costs of sale, pay the net
sales proceeds to the defaulting party.
17. Marketing of Production
Each party that has contributed to the costs of implementing the production
decision shall be entitled to take in kind and separately market the
minerals produced from the mine in proportion to its interest.
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18. Deferred Carried Interest
If Minera Andes becomes entitled to a deferred carried interest under
paragraphs 10 or 12, the initial cash flows from sales of product from the
mine will be used to pay operating, marketing and distribution costs; taxes
(other than income taxes) and royalties. The resulting net proceeds will be
applied to settle any debt financing which had been arranged for mine
construction and any advances the Operator has made to cover sustaining
capital requirements or operating losses during this "cost recovery"
period. During this "cost recovery" period, Minera Andes will be entitled
to an advance royalty of 2% net smelter returns, to a maximum of US$500,000
per calendar year, which advance royalty shall be recoverable out of net
proceeds as if it was an advance made by the Operator.
After debt recovery, 90% of net proceeds shall be paid to the participating
party so that it may recover any equity financing which it has provided for
mine construction and its prior costs and expenditures and 10% of net
proceeds will be paid to Minera Andes.
After recovery of the equity contributions as aforesaid, the net proceeds
will be divided between the parties, 80% to the participating party and 20%
to Minera Andes.
19. Area of Interest
The outermost boundary of each Property shall comprise the Area of Interest
for that Property. Any additional properties acquired by Cominco or Minera
Andes within the Areas of Interest would be covered by this Agreement.
Cominco would agree to maintain all existing and new properties. If the
Management Committee should decide to drop any property, in whole or in
part, the Management Committee will give Minera Andes 60 days notice of its
untention to drop, in which event these lands will no longer be subject to
this Agreement.
20. Right of First Refusal
A party (the "vending party") shall be entitled to sell, transfer or
dispose of all or part of its interest in a Property; provided, however,
that the other parties, in proportion to their respective interests, shall
have the right of first refusal to acquire the disposing party's interest
at the same price and on the same terms as a third party has offered, which
right is exercisable within 60 days of receipt by that other party of a
copy of the offer to purchase which the vending party has received and is
willing to accept. The right of first refusal shall not apply to sales,
transfers or dispositions to affiliates. For this purpose, Teck Corporation
and its affiliates shall be deemed to be affiliates of Cominco.
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21. Termination
Prior to exercising the option on either Property, Cominco may, on 60 days
notice, terminate this Agreement with regard to a Property, at any time
after having incurred the firm expenditures set out for that Property in
paragraph 5(b) or (c). Any obligations accruing after the notice of
termination and before the termination date (i.e., lease and option
payments) shall be paid by Cominco.
22. Force Majeure
The Operator shall be entitled to claim force majeure if it is delayed or
prevented from performing any obligation by reason of any cause, excluding
lack of its own finances, beyond its reasonable control.
23. Sale of Minera Andes Shares
If Cominco wishes to sell any shares in Minera Andes (the "Offered
Shares'), Cominco shall first make an offer (the "Share Offer") in writing
to Minera Andes to sell the Offered Shares to Minera Andes or a party
nominated by Minera Andes. The Share Offer shall state the price and the
other terms and conditions of the Share Offer, as applicable and, in the
case of a Share Offer other than an Open Market Disposition the name of any
proposed purchaser from Cominco. If Cominco wishes to make an Open Market
Disposition of Offered Shares, the price under the Share Offer shall be the
Market Price.
At any time during the period of:
(a) two business days immediately following the date on which the Share
Offer is received by Minera Andes (the "Notice Date") if the Share
Offer notice relates to an Open Market Disposition; and
(b) 10 business days immediately following the Notice Date for any other
proposed sale Minera Andes may accept the Share Offer with respect to
all of the Offered Shares.
Minera Andes' failure to give notice within the time provided shall be
construed as a decision not to accept the Share Offer.
If a person, other than Cominco, makes a Take-over Bid, Cominco's proposal
or wish to tender into that bid shall be and be deemed to be an Open Market
Disposition, and governed by and subject to the terms of paragraph 23(a),
excluding price.
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For purposes of this paragraph, the following terms shall have the
following meanings:
(c) "Market Price" means the aggregate sale price of Minera Andes' shares
sold during the three consecutive trading days immediately preceding
the day of delivery of a Share Offer divided by the total number of
Minera Andes' shares so sold during that three day period; and
(d) "Open Market Disposition" means a disposition through the facilities
of the Alberta Stock Exchange which is carried out through and in
accordance with the usual or customary rules for trading on the floor
of that exchange.
The purchase and sale of the Interest and of the Offered Shares shall be
completed at the Vancouver head office of Cominco at 11:00 a.m. on the 10th
business day after the date on which the Share Offer if received by Minera
Andes or such other time and place as may be agreed upon by the parties. At
the closing the purchase price shall be paid by certified check, banker's
draft or money order against delivery of certificates, duly endorsed in
blank for transfer, representing the Offered Shares, as the case may be.
24. Governing Law
The agreement shall be governed by the laws of British Columbia.
25. Conditions Precedent
This Agreement is subject to approval by Minera Andes' Board of Directors.
The private placement contemplated in paragraph 3 is also subject to
approval by the Alberta Stock Exchange. Both approvals are to be obtained
by March 22, 1996, Minera Andes will promptly take all reasonable steps to
obtain the approvals. If Board approval has been given to this Agreement
but the Exchange has not approved the private placement this Agreement
shall proceed with the private placement provisions being deemed to have
been deleted.
Upon execution, this letter agreement shall become a binding and legally
enforceable agreement which will continue in effect until such time as it is
replaced by a more definitive agreement. Please indicate your acceptance of our
proposal by signing and returning the enclosed duplicate copy of this letter. We
will then have our counsel prepare a draft of a definitive agreement embodying
the above terms and work with you to try to complete that agreement within 90
days.
Yours truly,
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COMINCO LTD.
By: /s/ XXXXXX X. XXXXXXXX
------------------------------
Xxxxxx X. Xxxxxxxx
Vice-President, Exploration Agreed
MINERA ANDES INC.
By: /s/ XXXXX X. XXXXXXX
---------------------------------
(Title: President )
(Date: March 12, 1996 )
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SCHEDULE A
SANTA XXXXX
Cateo
Name Cateo # Size (HA) Owner Province
---- ------- --------- ----- --------
Cateo 26-G-93 2,500 Giustozzi Mendoza
Cateo 88-C.93 1,000 Xxxxxxx Xxxxxxx
Cateo 92-R-93 6,070 Xxxxxxxxxx Xxxxxxx
Cateo 96-B-93 1,520 Xxxxx Xxxxxxx
Cateo 99-T-93 900 Xxxxx Xxxxxxx
Cateo 101-G-93 3,370 Giustozzi Mendoza
Cateo 383-I-93 4,900 Xxxxx Xxxxxxx
Xxxx Xxxxxxx 343-G-93 makes up part of 26-G-93 Xxxxxxxxx Xxxxxxx
Xxxx Titam 344-G-93 makes up part of 101-G-93 Xxxxxxxxx Xxxxxxx
Xxxx Xxxxxx 345-C-93 makes up part of 22-C-91 Giustozzi Mendoza
Geotec 11 137-C-94 makes up part of 381-I-93 Xxxxx Xxxxxxx
Geotec 12 138-C-94 makes up part of 381-I-93 Xxxxx Xxxxxxx
Geotec 13 138-C-94 makes up part of 381-I-93 Xxxxx Xxxxxxx
Xxxxxxx 1 148-N-95 makes up part of 92-B-93 Xxxxx Xxxxxxx
Xxxxxxx 2 149-N-95 makes up part of 98-B-93 Xxxxx Xxxxxxx
Xxxxxxx 3 150-N-94 makes up part of 383-I-91 Xxxxx Xxxxxxx
XXXX XXXXXX
Xxxx Name Expidente # Size Owner Province
(HA)
--------- ----------- ---- ----- --------
Provincial Reserve Area 10.163 CORMINE S.H.P. Neuquen
Xxxxxxx Xxxxx 6.513/77 250 Xxxxxxxx Neuquen
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Mina Name Expidente # Size Owner Province
(HA)
--------- ----------- ---- ----- --------
Sin Rival 4.062/67 18 Xxxxxxxx Neuquen
La Raubalcas 139.153/49 18 Xxxxxxxx Neuquen
Dos Guanacos 11.057/81 27 Xxxxxxxx Neuquen
Maipu 104.473/50 24 Xxxxxxxx Neuquen
Lican 4.867/69 18 Xxxxxxxx Neuquen
Carolina 10.404/80 50 Neuquen
Xxxxxxx Xxxxxxxxx 10.316/79 27 Neuquen
El Lio 11.519.84 27 Xxxxxxxx Neuquen
