AGREEMENT ON
EXPLORATION OF NATAL I & NATAL II CONCESSIONS
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AGREEMENT ON
EXPLORATION OF NATAL I & NATAL II CONCESSIONS
This Agreement is made as of this 12th day of October, 1998 ("Effective
Date") between Dragon Diamond Corporation ("Dragon")
and
South African Diamond Holding Corp. ("SADIA") together with its wholly owned
United States and Venezuelan subsidiaries, namely Adamantine Mining Corp.
(U.S.A.) ("Adamantine U.S.A."), and Compania Minera Adamantine, C.A.
("Adamantine Venezuela"), all hereunder referred to collectively as "SADIA
Group"
RECITALS
A. South African Diamond Mining Corp. wholly owns Adamantine Mining
Corp. (U.S.A.), and Adamantine Mining Corp. (U.S.A.) wholly owns Minera
Adamantine, C.A., and Minera Adamantine C.A. has exclusively contractual rights
(the "Contract Rights") to carry out such activities consisting of exploration
for, and development and exploitation of, gold-bearing ores, alluvial diamonds,
and diamond-bearing veins throughout the territory that makes up the Guayana
Region, in the Capital District of Cedeno in the State of Bolivar, Venezuela,
known as Natal I and II (the "Properties") totally approximately 6,378.17
hectares.
B. Dragon wishes to acquire an interest in the Contract Rights
exclusively for the Properties, and SADIA Group is willing to grant any and all
of the Contract Rights to Dragon.
ARTICLE I 1.1 General. Dragon and SADIA Group hereby enter into this
Agreement for the purposes hereinafter stated. All of the rights and obligations
of the Participants in connection with the Properties and all Operations shall
be subject to and governed by this Agreement. SADIA Group hereby grants to
Dragon exclusively any and all of the Contract Rights for the exploration, and
development and exploitation of, gold-bearing ores, alluvial diamonds, and
diamond-bearing veins throughout the Properties according to the terms of this
Agreement.
1.2 Purposes. This agreement is entered into for the purpose of
establishing diamond operations within the Properties, which may include the
following:-
a) to establish alluvial exploration and exploitation programs;
b) to establish central and field diamond buying offices;
c) to establish a Miner's Small Tools Program;
d) to evaluate existing and explore new kimberlite locations;
e) to evaluate the possible development and mining by exploration
and, if justified, to engage in development and mining;
f) to conduct further exploration within the Properties;
g) to perform any other activity necessary, appropriate, or
incidental to any of the foregoing included in the Contract Rights within the
Properties.
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1.3 Term. The term of this Agreement shall be for a term of three
(3) years from the Effective Date unless the contract is earlier terminated as
herein provided.
ARTICLE II
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS; INDEMNITIES
2.1 Representations and Warranties of Both Participants. As of the
Effective Date, each Participant warrants and represents to the other that:-
a) it is a corporation duly organized and in good standing in its
state of incorporation and is qualified to do business and is in good standing
in those states where necessary in order to carry out the purposes of this
Agreement;
b) it has the capacity to enter into and perform this Agreement and
all transactions contemplated herein and that all corporate, board of Directors,
shareholder, surface and mineral rights owner, lessor, lessee and other actions
required to authorize it to enter into and perform this Agreement have been
properly taken;
c) it will not breach any other agreement or arrangement by entering
into or performing this Agreement;
d) it is not subject to any governmental order, judgment, decree,
debarment, sanction or Laws that would preclude the permitting or implementation
of Operations under this Agreement; and
e) this Agreement has been duly executed and delivered by it and is
valid and binding upon it in accordance with its terms.
2.2 Representations of SADIA Group. As of the Effective Date, SADIA
Group makes the following representations to Dragon:
a) With respect to those Properties SADIA Group has the Contract
Rights in the Properties free and clear of all encumbrances or defects in title.
b) With respect to those Properties in which SADIA Group holds an
interest under the Contract Rights to the Properties:
(i) SADIA Group has the exclusive Contract Rights of such
Properties;
(ii) SADIA Group is not and has not received any notice of
default of any of the terms or provisions of such Contract Rights;
(iii) SADIA Group has the authority under the Contract Rights
to perform fully its obligations under this Agreement;
(iv) to SADIA Group's knowledge, the Contract Rights are valid
and in good standing;
(v) SADIA Group shall not sell or transfer any or all of its
Contract Rights in the Properties nor lease, mortgage or otherwise encumber the
Properties during the term of this Agreement without the prior written consent
of Dragon, such consent
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not to be unreasonably withheld by Dragon. SADIA Group hereby grants Dragon
first right of refusal on any sale or transfer or it's interest or Contract
Rights in the Properties. Dragon must exercise it's right of first refusal
within 15 days of notice from SADIA Group's intent to sell or transfer any or
all of it's Contract Rights in the Properties. In the event SADIA sells the
Contract Rights to a third party, then such Contract Rights shall be subject to
the rights and interests conferred to Dragon by this Agreement
(c) SADIA Group provides to Dragon exclusively the Contract
Rights to carry out such activities consisting of exploration for, and
development and exploitation of, gold-bearing ores, alluvial diamonds, and
diamond-bearing veins throughout the territory that makes up the Guayana Region,
in the Capital District of Cedeno in the State of Bolivar, Venezuela, known as
Natal I and II (the "Properties") totally approximately 6,378.17 hectares, for
the term of this Agreement.
ARTICLE III
RELATIONSHIP OF THE PARTICIPANTS
3.1 No Partnership. Nothing contained in this Agreement shall be
deemed to constitute any participant the partner or the venture of the other,
or, except as otherwise herein expressly provided, to constitute any Participant
the agent or legal representative of the other, or to create any fiduciary
relationship between them.
ARTICLE IV
CONTRIBUTIONS BY PARTICIPANTS
4.1 Dragon will carry out exploration programs on the Properties as
follows:-
a) To target diamond producing areas ("Target Area") according to
Dragon's engineer's recommendations;
b) To pursue the purposes set out in section1.2 herein;
4.2 Dragon agrees to:
a) issue to SADIA: -
(i) 60,000 shares of Dragon as set out in section 4.8;
(ii) 80,000 shares of Dragon on the first anniversary of this
agreement;
(iii) 110,000 shares of Dragon on the second anniversary of
this agreement;
b) spend $250,000 in exploration on the Properties as follows:
(i) $50,000 during the first year of this agreement;
(ii) $80,000 during the second year of this agreement;
(iii) $120,000 during the third year of this agreement.
(c) In the event that Dragon shall spend funds in excess of that
stated in 4.2(b)(i)(ii) in any year of this agreement, then, that excess shall
be carried forward to the next year.
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4.3 This Agreement is subject to the approval of the authorities
having jurisdiction and Dragon agrees to instruct its attorneys to apply for the
approval and issuance of 60,000 Dragon shares to SADIA that within five working
days of the effective date of this agreement.
4.4 In the event that Dragon shall: -
(i) issue the 250,000 shares of Dragon to SADIA;
(ii) spend U.S.$250,000 as stated in clause 4.2(b) herein; then
SADIA shall cause SADIA Group to grant and transfer to Dragon a 50% interest in
the Properties. If in addition to issuing the above mentioned 250,000 shares to
SADIA, Dragon shall spend a total of $750,000 in exploration on the Properties
within three (3) years of the effective date of this Agreement, then SADIA shall
cause SADIA Group to grant and transfer to Dragon a 75% interest in the
Properties.
4.5 In the event Dragon's explorations indicates the presence of
such quantities of diamonds that, in Dragon's sole judgment, it is economically
feasible to mine, Dragon and SADIA Group will form a joint venture company
("Joint Venture Company") dedicated to mining that Target Area of the Property.
4.6 Each Joint Venture Company will be owned and controlled equally
by SADIA Group and Dragon and the Joint Venture Company's function will be to:
a) engage in alluvial, fluvial and kimberlite mining of the
target area;
b) continue development of the target area, which would include
test-mining, pilot plant recovery of diamonds and negotiating with major
partners and financial institutions.
Notwithstanding the foregoing, if in addition to spending the
funds as set out in section 4.2(b) herein, Dragon spends an additional $500,000
on the Properties then Dragon shall have a 75% interest in any Joint Venture
Company and SADIA Group shall have a 25% interest in any Joint Venture Company.
4.7 To accomplish and comply with Sections 4.4, 4.5 and 4.6 above,
the Corporacion Venezolana de Guayana ("C.V.G.") will be requested by SADIA
Group to allow assignment of all or part of SADIA Group's interest in the
Properties to the Joint Venture company or companies or to Dragon as the case
may be. Should the C.V.G. not allow any such assignment, then SADIA Group and
Dragon will enter into whatever inter-corporate arrangements through the
transfer of the common stock of Adamantine U.S.A. or Adamantine Venezuela or
other means that are mutually agreeable to the Participants, that:
a) in regard to Section 4.4 will accomplish an effective
assignment to Dragon of either:
(i) 50% interest in the Properties; or
(ii) 75% interest in the Properties in the event that Dragon
spends an additional $500,000 on the Properties, as the case may be.
b) in regard to Section 4.6 will accomplish an effective
assignment to Dragon of either:
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(i) a 50% interest in the subject target area as contemplated
in section 4.4 herein; or
(ii) a 75% interest in the subject target area in the event
that Dragon spends an additional $500,000 on the Properties within the term of
the Agreement.
4.8 Notwithstanding section 4.5 herein, if either party elects not
to participate in an individual Joint Venture company, then that party shall
have no further interest in or right to that specific target area and the other
party shall have the right to proceed unilaterally with the further development
of the target area.
4.9 On each Target Area where Dragon elects not to proceed to the
next step (hereinafter called "SADIA Site"), Dragon will provide SADIA with the
exploration data on that SADIA Site and Dragon will have no further interest in
or rights to each SADIA Site. On each Target Area that SADIA elects not to
proceed to the next step (hereinafter called "Dragon Site"), SADIA will assign
all of its interest in the Dragon Site to Dragon, and should C.V.G. not allow
such assignment then SADIA Group and Dragon shall enter into whatever
inter-corporate arrangements that will accomplish an effective assignment to
Dragon of a 100% interest in each Dragon Site.
4.10 SADIA will provide to Dragon a Notice of Intent to sell the
Dragon shares issued to SADIA pursuant to this Agreement, at which time Dragon
shall have the right to purchase the said shares issued to SADIA at a price
equal to the greater of the market value of the shares or $1.00 per share,
within 30 clear days of receiving the said Notice of Intent to sell.
4.11 Notwithstanding the foregoing, in the event that Dragon fails
to issue the shares or fails to spend the funds as stated in clause 4.2 herein,
then this agreement shall be null and void, and neither party hereto shall have
any recourse against the other to enforce the terms of this agreement.
ARTICLE V
GENERAL PROVISIONS
5.1 Notices All notices, payments and other required or permitted
communications ("Notices") to either participant shall be in writing, and shall
be addressed respectively as follows:
If to SADIA Group:- South African Diamond Holding Corp.
P.O. BOX 9
Payson Arizona 85541
Attention Thomas L. Crom III
Telephone (520) 474-9151
Facsimile (520) 474-8354
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If to Dragon:- Dragon Diamond Corporation
P.O. BOX 34007
Vancouver, B.C. Canada, V6J 4M1
Attention Larry N. Lorenz
Telephone (604) 737-8597
Facsimile (604) 737-8593
5.2 Currency. All references to dollars or $ herein shall mean
lawful currency of the United States of America.
5.3 Force Majeure Except for the obligation to make payments when
due hereunder, the obligations of a Participant shall be suspended to the extent
and for the period that performance if prevented by any cause, whether
foreseeable or unforeseeable, beyond its reasonable control, including, without
limitation, labor disputes (however arising and whether or not employee demands
are reasonable or within the power of the Participant to grant); Acts of God;
Laws, instructions or requests of any government or governmental entity;
judgments or orders of any Court; inability to obtain on reasonably acceptable
terms any public or private license, permit or other authorization; curtailment
or suspension of activities to remedy or avoid an actual or alleged, present or
prospective violation of Environmental Laws; action or inaction by any federal,
state or local authority that delays or prevents the issuance or granting of any
approval or authorization required to conduct Operations beyond the reasonable
expectations of the Participant seeking the approval or authorization
(including, without limitation, a failure to complete any review and analysis
required by a National Environmental Policy Act or any similar Venezuelan law
within one month of initiation of that process); acts of war or conditions
arising out of or attributable to war, whether declared or undeclared; riot,
civil strife, insurrection or rebellion; fire, explosion, earthquake, storm,
flood, sink holes, drought or other adverse weather condition; delay or failure
by suppliers or transporters of materials, parts, supplies, services or
equipment or by contractors' or subcontractors' shortage of, or inability to
obtain, labor, transportation, materials, machinery, equipment, supplies,
utilities or services; accidents; breakdown of equipment, machinery or
facilities; actions by native rights groups, environmental groups, or other
similar special interest groups; or any other similar special interest groups;
or any other cause whether similar or dissimilar to the foregoing. The affected
Participant shall promptly give notice to the other participant of the
suspension of performance, stating therein the nature of the suspension, the
reasons therefor, and the expected duration thereof. The affected Participant
shall resume performance as soon as reasonably possible. The term of this
Agreement shall be extended by an amount of time equal to a period or periods of
suspension.
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5.4 Further Assurances Each of the Participants shall take, from
time to time and without additional consideration, such further actions and
execute such additional instruments as may be reasonably necessary or convenient
to implement and carry out the intent and purpose of this Agreement or as may be
reasonably required by lenders in connection with project financing.
5.5 Counterparts This Agreement may be executed by any number of
counterparts, and it shall not be necessary that the signatures of all
Participants be contained in any counterpart. Each counterpart shall be deemed
an original, but all counterparts together shall constitute one and the same
instrument.
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Signed by South African Diamond Holding Corp. this ______ day of September, 1998
by:
/s/Thomas L. Crom III
Thomas L. Crom III
President
Signed by Adamantine Mining Corp. this _______ day of September, 1998 by:
/s/Thomas L. Crom III
Thomas L. Crom III
Signed by Compania Minera Adamantine C.A. this _____ day of September, 1998 by:
/s/Thomas L. Crom III
Thomas L. Crom III
Signed by Dragon Diamond Corporation this _______ day of September, 1998 by:
/s/Larry N. Lorenz /s/Aubrey L. McGinnis
Larry N. Lorenz Aubrey L. McGinnis
President Secretary-Treasurer
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Exhibit 27
Financial Data Schedule
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