RIO
TINTO
Xx. Xxxx Xxxxxxxxx
APAC Minerals Inc.
Suite 0000 000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxx
1 December, 1999
Ref:A99180.KHH
Dear Xx Xxxxxxxxx
Letter Agreement
APAC Minerals Inc. and ARMINEX S.A. (collectively 'APAC") hereby grant to Rio
Tinto Mining and Exploration Limited ("Rio Tinto") an exclusive right to enter
into option arrangements to acquire an interest in one or more target areas
within the prospect that Arminex S.A. holds in Rio Negro Province, Argentina
known Los Menucos. The Los Menucos prospect area the ("Property") comprises the
mineral rights listed in Schedule A,, their location is approximately shown on
the map in Schedule B.
APAC Minerals Inc. and ARMINEX S.A. hereby undertake that the obligations and
undertakings hereunder shall be fulfilled, as appropriate, either by APAC
Minerals Inc. or by Arminex S.A.
Stage 1
Subject to completion of a separate share subscription agreement, to which a
copy of this Letter Agreement shall be attached, an affiliate of Rio Tinto shall
take a US$700,000 private placement of stock in APAC Minerals Inc. APAC will use
the full US$700,000 proceeds of the private placement to fund exploration
expenditures in the Initial Programme, as defined below, on the Property and
shall use best efforts, with time of the essence, to complete the Initial
Programme within an 8 month period commencing on the Closing Date (as defined in
the share subscription agreement referred to above), this period shall be known
as "Stage 1". As part of its US$700,000 exploration expenditures APAC shall
include a management charge equal to 10% of direct exploration expenditures, in
lieu of off-site overhead, administration and office expenses.
During Stage 1, APAC shall conduct and complete an exploration programme (the
"Initial Programme") designed jointly by Rio Tinto and APAC but subject to final
determination by Rio Tinto taking into reasonable consideration the views of
APAC. The objective of the Initial Programme will be to test two known target
areas, Puesto-Caltruna and Cuya-Aguadita, and possibly to identify others and to
geographically define all target areas of interest to Rio Tinto within the
Property.
During Stage 1 APAC will be manager and operator and Rio Tinto shall have the
right to second a geologist to the programme, the salary cost of the seconded
geologist shall be to Rio Tinto's account.
Performance of Operations. During Stage 1 APAC shall:
o Comply with all applicable laws, rules and regulations and shall carry out
operations in a good, workmanlike and efficient manner in accordance with
generally accepted international mining practice.
o No later than 5 days after the end of every second calendar month, provide
Rio Tinto with reports showing in reasonable detail the work performed, the
expenditures incurred and the results obtained in the preceding two months;
expenditure reports shall be in such form and of such detail as is
reasonably requested by Rio Tinto.
o Maintain accounts of expenditures in accordance with generally accepted
accounting standards, any legislative and regulatory requirements.
o Immediately inform Rio Tinto of any occurrence or non occurrence that may
affect the validity or good standing of the mineral rights comprising the
Property.
o Immediately inform Rio Tinto of any adverse environmental, health, safety
or community relations event or issue. If any such communication is verbal
it shall as soon as possible thereafter, with time of the essence, be
followed by a detailed written report of a standard acceptable to Rio
Tinto.
No later than 45 days after the end of Stage 1, Rio Tinto shall have the
exclusive right to elect to enter separate exclusive option agreements in
respect of one or more target areas. Rio Tinto may exercise this right by giving
written notice to APAC. In its notice Rio Tinto shall defined the geographic
boundaries of the target area; if APAC disputes these boundaries the parties
shall discuss in good faith to mutually agree the boundaries taking into
consideration Rio Tinto's probable ability to operate a unitary mining and
processing operation within the target area defined. The option arrangements
shall be according to the terms set out below under the heading "Option Terms".
Option Terms
The terms set out below shall apply to any target area that Rio Tinto elects to
option.
1. Rio Tinto shall have an exclusive option to acquire an initial 55% interest
in the target area, exercisable at the sole election of Rio Tinto, by Rio
Tinto making work expenditures of no less than US$2 million by the second
anniversary of the option. The effective date of the option shall be the
date of the notice given by Rio Tinto that it wishes to option a particular
target area.
2. Upon Rio Tinto exercising its option and earning a 55% interest, APAC shall
have the right to elect either: (a) that joint contributory joint venture
arrangements are entered into between the parties in which Rio Tinto will
have an initial 55% interest and APAC and initial 450m interest - the terms
of the joint venture shall include the terms set out in
Clause 8 below - or (b) to request that Rio Tinto continues sole funding
future exploration costs through to no later than the sixth anniversary of
the option in order to earn an additional 15% interest in the target area
(to vest at a 70% interest in the target area) by spending an additional
US$8 million or making a decision to develop a mine before completing
expenditure of an additional US$8 million.
If Rio Tinto completes spending an additional US$8 million before the sixth
anniversary, but has not made a decision to develop a mine it shall have
earned a vested interest of 70% and at that time APAC shall have the right
to elect either: (a) that joint contributory joint venture arrangements are
entered into between the parties in which Rio Tinto will have an initial
70% interest and APAC and initial 30% interest - the terms of the joint
venture shall include the terms set out in Clause 8 below - or (b) to
request that Rio Tinto continues sole funding future exploration costs
through to no later than the sixth anniversary of the option in order to
earn an additional 5% interest (to vest at a 75% interest in the target
area) by spending an additional US10 million or making a decision to mine
before completing expenditure of an additional US$10 million .
3. Upon Rio Tinto earning a 70% or 75% interest, as the case may be, under the
terms of Clause 2 above, APAC shall have the right to elect either: (a)
that joint contributory joint venture arrangements are entered into between
the parties in which Rio Tinto will have an initial 70% or 75% interest, as
the case may be, and APAC and initial 30% or 25% interest, as the case may
be, the terms of the joint venture to include the terms set out in Clause 8
below, or (b) to request that Rio Tinto provide financing of APAC's
interest through to commencement of production. If APAC elects (b) Rio
Tinto's interest in the target area shall increase to 80%. Rio Tinto shall
provide such financing at an interest rate of LIBOR + 3% which shall be
repaid out of 90% of APAC's share of net revenues from the target area.
4. During the option, the making of any work expenditures shall be in the sole
discretion of Rio Tinto. In order to maintain its option to earn its next
relevant interest level Rio Tinto shall make work expenditures of
US$500,000 between any two anniversaries of the option failing which it may
pay the shortfall to APAC within 30 days of the end of such period.
5. After Rio Tinto has vested at a 55% interest, but before it has
completed a cumulative US$4 million of work expenditures under the option,
if Rio Tinto fails to spend US$500,000 between any two anniversaries of the
option or to pay the shortfall to APAC as provided for in Clause 4, APAC
shall have the option to give notice that it is undertaking a sole risk
programme in the target area. Under this sole risk programme, APAC shall
keep Rio Tinto reasonably informed and provide calendar quarterly reports
to Rio Tinto and if APAC completes expenditure of US$2 million within two
years of its notice it shall provide a full report of its exploration
results to Rio Tinto and Rio Tinto shall have 45 days from receipt of such
report to elect either: (a) to take control of the target area and work
programmes thereon and to become manager and operator and to provide all
funds necessary to complete a bankable feasibility study on the target area
in order to have a 55% interest, or (b) to transfer its entire interest to
APAC in consideration for a 5% Net Profit interest from future production.
For avoidance of doubt, the possibility of APAC undertaking a sole risk
programme does not prohibit Rio Tinto from selling or making other
arrangements for the transfer of its interest to a third party. If APAC
does not complete sole risk expenditures of US$2 million within two years,
the parties interest in the target area shall be as they were before
commencement of the sole risk programme.
6. During the time when Rio Tinto is making work expenditures, APAC grants Rio
Tinto the sole and exclusive right to undertake all exploration, and to
make all decisions regarding exploration, on the target area. Rio Tinto
shall carry out all activities under this Letter Agreement in a good,
workmanlike and efficient manner, in accordance with generally accepted
mining practice and all applicable laws. APAC shall have the right during
the option period to second a geologist to the exploration programme.
Subject to clause 11 below, Rio Tinto accepts APAC's requirement to inform
the public of significant exploration results through news releases; Rio
Tinto will keep APAC reasonably informed of exploration data and will
provide it with calendar quarter exploration reports.
7. Upon 30 days prior written notice to APAC, Rio Tinto may withdraw from and
terminate its option at any time. Such termination shall not relieve Rio
Tinto of its share of any liabilities, whether known or unknown, to third
parties or governmental authorities which arise from activities undertaken
by Rio Tinto under this Letter Agreement prior to its withdrawal.
8. The documentation for the joint venture arrangements (the "JVA") shall be
as agreed between the parties as provided in clause 10 of this Letter
Agreement. The JVA shall include the following terms:
o Parties contribute to joint venture costs and expenses pro rata in
proportion to their respective participation interests;
o Dilution, pro rata according to deemed contributions and actual
contributions, should either party elect not to contribute its
proportionate share of the costs and expenses of the joint venture, and
accelerated dilution at 125% should a party agree to make its pro rata
contributions and fail to do so:
o Forfeiture of a party's entire participating interest and receipt of a 5%
Net Profit Interest from future production from the target area should a
party dilute to less than a 10% participating interest;
o Pre-emption rights allowing a party to match any terms the other party may
agree for transfer, direct or indirect, of all or part of its interest,
including any royalty interest, in the JVA or the target area, other than
in the case of transfer to an affiliate company;
o Management of the joint venture by a management committee, which shall make
decisions by majority vote, with each party having a vote equal to its
participating interest;
o Appointment of Rio Tinto - or APAC should Rio Tinto be diluted below 50% -
as the manager, with responsibility to conduct all operations in a good,
workmanlike and efficient manner in accordance with sound mining practice,
industry standards and applicable laws:
o Management fees to the manager of 10% during exploration, 3% during
development and 2% during exploitation, all percentages being a percentage
of costs, and
o Other terms normally in mineral industry joint venture agreements.
Other Terms of this Letter Agreement
9. APAC hereby represents and warrants that:
o ARMINEX S.A. is registered holder of the mineral rights that comprise the
Property and that those mineral rights are held free and clear of all
liens, encumbrances, royalties, options, leases or any other contractual
commitments;
o that it has and shall retain and exercise the control of all actions of
ARMINEX S.A. to the extent necessary to fulfil the obligations herein of
APAC and ARMINEX S.A. to Rio Tinto;
o the Property is in good standing and all assessment work or governmental
fees to maintain the Property are current, correct and paid in full:
o it has delivered or made available to Rio Tinto all material information
concerning the Property in its possession or control; and
o it has not received any claim or notice of violation in relation to the
Property.
These representations and warranties shall continue throughout the term of
this Letter Agreement.
10. Rio Tinto and APAC agree that though this Letter Agreement, which is
subject to the laws of British Columbia, is a binding document, it only
sets out the basic terms of the option and joint venture. The parties shall
in good faith negotiate detailed option and joint venture agreements during
Stage 1, such agreements being suitable for registration in Argentina. If
Rio Tinto elects to enter into option agreement(s) at the end of Stage 1,
such agreements shall be entered into between a Rio Tinto entity registered
in Argentina and ARMINEX. Upon entering such agreement, this Letter
Agreement shall automatically terminate. All parties agree to file all such
documents in Argentina as are necessary to protect the parties.
11. Any information or data obtained in connection with the performance of this
Letter Agreement is confidential and neither APAC nor Rio Tinto shall make
public statement concerning this Letter Agreement or the activities
contemplated herein without the prior consent of the other except as
provided for herein. Such consent shall not be unreasonably withheld.
As early as practicable and not less than two business days before either
party to this Letter Agreement makes any public statement concerning this
Letter Agreement or activities contemplated herein it shall first give
the other party notice of the intended announcement, including a copy of
such announcement. The other party making the public announcement shall
in good faith accommodate the other party's reasonable requests
concerning the contents thereof. The non-disclosing party shall provide
such requests promptly upon receipt of the copy of the proposed
announcement and shall be deemed to have no such requests if the
non-disclosing party fails to present such request within two business
days of delivery of such proposed notice. Notwithstanding the review of
proposed announcements by the non-disclosing party, the disclosing party
accepts full responsibility and liability for the content of any public
statement it may make.
We are sending this Letter Agreement to you by fax. Please signify the agreement
of APAC Minerals Inc. and ARMINEX S.A. to it by countersigning the faxed version
below and initialling each page and faring the signed version to me in Xxxxxxxx.
The parties hereto agree that the terms of this Letter Agreement shall be
binding upon receipt of faxed signatures, but for your files and ours I shall,
after receiving APAC's faxed signatures, send you two duplicate originals of
this Letter Agreement. Please execute them and return one copy to me.
Yours sincerely,
RIO TINTO MINING AND EXPLORATION LIMITED
By :/s/ XXX XXXXXX
------------
Xxx Xxxxxx
Name : X.X. XXXXXX Title: General Manager Commercial
APAC MINERALS INC.
By : /s/ XXXX XXXXXXXXX
---------------
Xxxx Xxxxxxxxx
Name : Xxxx Xxxxxxxxx Title: President
ARMINEX S.A.
By : /s/ XXXX-XXXX XXXXXXXXXX
----------------------
Xxxx-Xxxx Xxxxxxxxxx
Name : XXXX-XXXX XXXXXXXXXX Title: President
SCHEDULE A
List of the Mineral Rights Comprising the "Property"
NAME FILE
Cuya....................................... 23054-9
Cuya Sur.................................. 23105-98
Cuya Oeste.................................23110-98
Lagunita ..................................23058-98
Laguna.....................................23055-98
Cuya Norte. ...............................23106-98
Cuya Este .................................24050-99
Adriana ...................................24046-99
Trayen ....................................24047-99
Abanico....................................24051-99
Niyeu .....................................24049-99
Porvenir ..................................24045-99
Coyuelo....................................24044-99
Catruna ...................................24012-99
Mariposa ..................................24013-99
Xxxxxx ....................................24028-99
Amapola....................................24025-99
Petunia....................................24021-99
Jalil......................................23056-98
Puesto.....................................23053-98
Panepi.....................................23057-98
Puesto Norte. .............................23109-98
Agostura ..................................24023-99
Puesto Sur.................................23108-98
Ceibo .....................................24022-99
AydeC......................................24026-99
Xxxxx......................................24030-99
Xxxxxxxxx .................................24020-99
Xxxxx .....................................24024-99
Tamarindo........... ......................24031-99
Coiron ....................................24027-99
Schedule B
Map of the Los Menucos Prospect and its Location
See next two pages
Initials : "Xxx Xxxxxx"
"Xxxx Xxxxxxxxx"
"Xxxx-Xxxx Xxxxxxxxxx"
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